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PSA Sales Surge Camouflages Opel-Vauxhall Struggle

PSA Sales Surge Camouflages Opel-Vauxhall Struggle.

“Tavares seems to make the mistake of changing things too fast and starting a dangerous downward spiral in sales”

“PSA is working intensely on (OV) pricing and doing a proper job of cleaning up a very ugly business”

PSA’s take-over of Opel-Vauxhall allowed it to make the claim that sales were up 42 per cent in the first quarter, but the integration of the serial loss maker bought from General Motors last year is not going smoothly.

Talks between PSA and German union IG Metall over the future of Opel’s Eisenach factory have stumbled, while according to the Center for Automotive Research (CAR) at the University of Duisburg-Essen, Opel’s market share in Europe has dived to 5.8 per cent from 6.5 per cent.

In its first quarter report PSA said overall sales rose 42 per cent to €18.18 billion compared with the same period last year. Opel-Vauxhall revenue was €4.8 billion, but it offered no comparison figure. French companies only report sales in the first and third quarters and reveal profits every six months. 

“(PSA CEO Carlos) Tavares seems to make the mistake of changing things too fast and starting a dangerous downward spiral in sales. Opel-Vauxhall market share in the first quarter of 2017 in the E.U. and EFTA was still 6.5 per cent, but this year it has melted to 5.8 per cent,” said CAR director Professor Ferdinand Dudenhoeffer.

“Due to the termination of dealer contracts we must expect a further decline in sales, because terminated dealers are anything but motivated to increase sales. Secondly, Opel has significantly cut its advertising spending in the course of the renovation. Without advertising, it will be difficult to maintain market share,” Dudenhoeffer said.

PSA has announced Opel or Vauxhall franchises will be removed from all dealers by April 2020, unless they renegotiate terms.

Reuters’ Breaking Views columnist Liam Proud doesn’t like the fact that PSA is so concentrated on Europe, and thinks its share price may be overvalued given its profit performance compared with rivals. Opel-Vauxhall is dragging profits down.

“Margins have been unimpressive since the acquisition of Opel-Vauxhall last year. That unit made an operating loss of €179 million in the last 5 months of 2017, when PSA first consolidated its results, from €7.2 billion of revenue – implying a negative operating margin of minus 2.5 per cent. Analysts expect the whole PSA group to make a 5.4 per cent operating margin this year, according to Eikon, compared with an average of 7.6 per cent for Volkswagen, Daimler, BMW, Renault and Fiat Chrysler,” Proud said.

Opel-Vauxhall’s recovery plan calls for a 2 per cent operating profit margin in 2020.

Thomson Reuters’ Eikon provides analytical financial information about companies.

“That makes PSA’s premium (stock market) valuation more striking,” said Proud.

Bernstein Research analyst Max Warburton concedes that Opel-Vauxhall is a shrinking business, but is much more optimistic about the possibilities for the overall PSA enterprise.

Ugly business
“This (shrinkage) is to be expected given the U.K market’s problems and PSA imposing the pricing and channel discipline that it has instilled in its own brands during the Tavares era. Much of the volume that has been lost is likely very low or even negative gross margin. Our conversations with Opel-Vauxhall executives and dealers, mainly in the UK, suggest PSA is working intensely on pricing and doing a proper job of cleaning up a very ugly business. We believe, Opel-Vauxhall was likely breakeven or was even profitable in Q1,” Warburton said.

Warburton said despite Opel-Vauxhall problems profit prospects look good.

“Our forecast for PSA’s first half core margin is 7.6 per cent – but that may be too low. Can a mass market European (manufacturer) make 8 per cent margins? Yes we believe it can. That’s an extraordinary achievement given low levels of industry profitability in recent decades,” he said.

“Too much France”
But CAR’s Dudenhoeffer sees a bleak short term future for Opel Vauxhall because of a shortage of new products – the new Corsa won’t appear until next year, and key SUVs like the Opel Crossland X and Opel Grandland X “are twins of PSA models and threaten cannibalization”.

“Too much France could put off the classic Opel clientele. That is the danger. Sales are going in the wrong direction. So there are a few problems with the recovery plan of Opel. Sales are going in the wrong direction and that is a big threat to the recovery,“ Dudenhoeffer said. 


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